On 13 October 2025, the Central Government Health Scheme (CGHS) will implement its most comprehensive overhaul in 15 years, adjusting reimbursement rates for ~2,000 procedures by an average of 25–30 per cent. More than a policy change, this regulatory reform has major strategic and financial implications, especially for private hospitals. By correlating rates by accreditation, hospital type, and city tier, the CGHS adjustment is set to have a bearing on hospital valuations, consolidation patterns and investment opportunities across India’s healthcare market.
Comprehension of CGHS and its function within India’s healthcare infrastructure
CGHS, established in 1954, covers medical coverage to central government employees, pensioners and their dependents by a network of more than 1,800 hospitals across India. Although the scheme targets a niche segment, it now represents a substantial revenue stream for many private hospitals. Outdated reimbursement rates and slow payments have discouraged wider enrolments until now. However, the current revision seeks to address these impediments, boosting the financial success of CGHS-associated services.
The 2025 policy rejig: Tiered and quality-linked price structure
The 2025 version adopts a tiered, quality-based pricing structure. The reimbursements are now contingent on the accreditations, category of hospital, city classification, and ward entitlement. NABH (National Accreditation Board for Hospitals)-accredited hospitals pay the base rate, while non-NABH institutions pay 15 per cent less. Hospitals in Tier 2 cities pay 10 per cent less than Tier 1, whereas those in Tier 3 cities pay 20 per cent less than Tier 1.
These reforms are expected to enhance accessibility to top-tier hospitals for CGHS beneficiaries, many of whom have faced difficulties obtaining treatment at premium facilities due to inadequate reimbursement rates.
Investment implications: Changing hospital valuations
For investors, the implications are immediate and structural. Hospitals with strong accreditation credentials and a substantial CGHS patient base are set to fetch premium prices, improved revenue visibility, and less contracting risk vis-à-vis the Government. However, hospitals without accreditation or those in smaller cities may witness margin pressures, driving consolidation amongst operators who cannot strategically utilise CGHS.
From a dealmaking viewpoint, this structural repricing may rebalance valuation models across the sector. High-CGHS-exposed hospitals and NABH-credent hospitals should benefit practically for EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) improvement, potentially accelerating the merger and acquisition pipeline for private equities and strategic consolidators seeking steady, low-volatility cash flows.
Accreditation as a competitive moat
Accreditation has progressed from a quality checkbox to a competitive moat. The new procedural mix, city-tier positioning, and patient demographics now require evaluation by hospitals to efficiently benefit from the new rate structure. Beyond direct reimbursements, CGHS frequently serves as a benchmark for private insurers and out-of-pocket patients, implying the change could have a ripple effect on pricing dynamics of the larger private healthcare industry ecosystem.
Strategic priorities for operators
Operators who shape their strategy around these changes can improve super-speciality offerings, launch high-quality services, and strengthen brand credibility. Those who do not adjust may fall behind, leading to less operational strength and lower investor interest.
The market has already recognised the structural shift brought about by the CGHS overhaul. Leading hospital chains have experienced a surge in investor confidence, fueled by expectations of improved margins and increased engagement with government-linked patient volumes.
From policy reform to strategic inflexion point
The takeaway is that the CGHS is no longer a passive revenue stream. The investors and operators must now evaluate a hospital through the lens of accreditation, procedural diversity, and strategic city presence. For the operators, investment in quality certifications, super-speciality expansion, and operational rigour is not a choice anymore; it has become an imperative. The 2025 revision is a policy-driven inflexion point, and those who interpret it as a simple rate revision risk missing its broader strategic implications.
This policy intervention strengthens the case for platform consolidation. Mid-sized accredited hospitals could now become bolt-on targets for larger networks, providing government-linked, predictable revenue streams with reduced reimbursement risk. The CGHS rate revision is not only corrective, it’s transformative. The Government has, in fact, created a reimbursement framework that rewards clinical excellence, reduces revenue volatility, and improves investment attractiveness by aligning reimbursement with accreditation, city tier, and procedure complexity. For hospital operators and investors, this is a clarion call: quality and accreditation now directly influence profitability, competitive positioning, and valuation potential.
Disclaimer – The views, thoughts and opinions expressed in the article are solely the author’s and are not representative of the author’s employer/ organisation.